The substantial increases in life expectancy witnessed in recent decades have been consistently underestimated, according to a new report.
Published by Swiss Reinsurance Co. Ltd., Zurich, Switzerland, the report is titled “A window into the future: Understanding and predicting longevity.” The report concludes that managing longevity risk requires the development of “robust” and “forward-looking scenarios” based on social factors, medical treatments and preventative approaches that influence disease.
“The failure to consider future drivers of mortality in historical predictions contributed to employer pension funds under-reserving for longevity risk and other bodies, including governments, not budgeting effectively for funding an ageing population,” says Daniel Ryan, head of life and health research and development at Swiss Re.
The report presents the building blocks of a disease-centered model and calls on experts from multi-disciplinary backgrounds, including medical experts, actuaries and demographers, to work together towards a greater understanding of future developments in human longevity.
The report recommends that pension plans assess their exposure to longevity risk and decide whether to pass it on to a third party that is better equipped to take on the risk. The report also suggests that insurers work in partnership with reinsurers to develop robust approaches to mitigating longevity risk.
“An improved approach to assessing future longevity is one of the essential components in creating an overall solution to the financial effects of ageing societies,” says Alison Martin, Swiss Re’s head of life and health products. “It is only through public and private bodies working together that the wider issue of a sustainable infrastructure for long-term retirement provision can be created.
“Reinsurers with appropriate capacity, who invest in longevity research and development, can play an important role in helping defined benefit pension funds and insurers manage their longevity risk,” Martin adds.